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The Cost of Not Training

Posted to HSI in the HR & Recruitment Group
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Chad Johnson's picture
Manager of Training Advisory Services HSI

As Manager of Training Advisory Services for HSI Industrial Skills, Chad oversees large-scale training projects for clients in the power generation industry, including developing all-inclusive...

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  • Mar 8, 2022
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Like any business activity, corporate training needs to be justified by return on investment (ROI). 90% of business leaders believe learning and development programs are key to closing important skill gaps. Closing those gaps shows up in productivity numbers and, ultimately, profits.  

On average, justification is there. A study by professional services firm Accenture found that, for every $1 invested in training, companies received $4.53 in return. That's a 353% ROI – enough to persuade most company management.  

Unfortunately, that justification can disappear when looking at a single program. According to HR Dive, only 8% of CEOs report seeing any business impact from their L&D programs. Even fewer (4%) saw a clear ROl.  

There are two possibilities. First, it’s hard to put a number on the value of effective training – training that actually makes a positive change to employee behaviors. Training is a long process with benefits that accrue in the future. By the time training pays off in terms of productivity, it's hard to tell where the boost came from.  

Second, training is also focused on prevention – preventing things like harassment, safety mishaps, social media blunders, or even just everyday role-specific mistakes. Prevention is also hard to measure. How do you measure things that don't happen?  

Maybe companies are not seeing their ROI directly because there are no benchmarks for measuring effects that may take many years to come to fruition, or don't happen at all.  

Instead of looking at the return on training dollars, companies need to look at the converse – the cost of NOT training.  

Top Areas Where Lack of Training Can Cost You Big  

#5: Safety Training 

#4: Technical Skills Training 

#3: Cybersecurity Training 

#2: Customer Service Training 

#1 Compliance Training 

Safety Training 

The Occupational Safety and Health Administration (OSHA) estimates U.S. employers pay out more than $1 billion per week for direct worker compensation alone. The National Safety Council has worked this number out to roughly $41,000 per worker injured, given average rates of injury, and nearly $1.2 million per worker death. 

Employers also need to consider the cost of OSHA penalties. New penalties for willful and repeat violations are $132,598 per violation. Serious, other-than-serious, and posting requirements are $13,260 per violation, and failure to abate violations are $13,260 per day beyond the abatement date. A company with three posting violations would pay almost $40,000 per year. 

Although penalties are costly, many business leaders consider workplace accidents relatively rare. However, according to the Bureau of Labor Statistics, the TCR (Total Recordable Cases) for private industry employers in 2020 was a rate of 2.7 cases per 100 employees. 

Direct Costs 

  • Medical costs 

  • Indemnity (payments to not work) 

Indirect Costs  

  • Lost production 

  • Training replacements 

  • Downtime and investigation  

  • Claim management  

  • Legal fees  

  • OSHA penalties  

  • Increased insurance premiums  

  • Loss of reputation  

Technical Skills Training 

Many industries are facing a skills gap due to retiring expert workers. Utilities are especially at risk as expert workers reach retirement age and fewer qualified workers are available to fill their place.  

According to the Department of Energy, 25% percent of the utility workforce is expected to retire by 2023. In addition, a January 10, 2022, article in Forbes Magazine says 43% of energy workers are considering exiting the business. On an individual basis, a utility with 100 workers could lose almost half its workforce in the next year. 

Energy impacts all industries. A shortage of workers means a slowdown in energy projects and production.  

According to research by zippia.com, an average job vacancy costs an employer about $4,129 just to fill each position, and it may take up to six months to reach a break-even point when accounting for additional costs to onboard and train the new employee. New hires also take time to reach full productivity, adding to the indirect costs of workforce replacement.  

Cybersecurity Training 

Cybersecurity breaches at national brands such as Target, Equifax, Home Depot, and several government and nonprofit organizations are well known. Lax cybersecurity is becoming more and more of a liability these days: a recent IBM/Ponemon Institute study calculated the cost of the average data breach is roughly $242 per stolen record, with the average total hovering around $8 million. The same study estimated a typical company has a 29.6% chance of experiencing a data breach in the next 24 months, a dramatic increase in the odds from just a few years ago. 

While the blame often focuses on hackers, a huge part of cybersecurity is preventing phishing and spear-phishing scams. Cybersecurity failures from these attacks occur because employees and staff do not know how to recognize such scams, and inadvertently allow access to hackers or pass along the scam emails. One in every 99 emails is a phishing attack. Training is an important component of prevention.  

NERC CIP Standards guide cybersecurity training for some in the power industry, but most companies aren’t required to comply at that level. 

The FBI estimates cyber criminals have stolen more than $12 billion from companies worldwide over a five-year span using phishing attacks and business email compromises. Over $2 billion of that has been from American companies. In fact, one calculation by Vade Secure estimated that, for a company with $100 million in revenue and 50,000 customer records, a single successful phishing attack could cost $7,2 million. 

Customer Service Training 

Customer service is seen as a cost center in most businesses. But quality customer service can save revenue. 

The lack of quality customer service costs companies. According to a May 2018 article from businesswire.com, U.S. companies lose $75 billion a year due to poor customer experiences. 

Why are these losses so large? 51% of customers will choose to never do business again with a company after just one negative experience. In addition, according to the American Express 2017 Customer Service Barometer, Americans tell an average of 15 people (friends, coworkers, or anyone else who will listen) about a poor customer service experience. Contrast that with the 11 people they tell about a good experience. In short, bad news travels fast. 

Those studies reveal only what happens when customer service is bad. Can better customer service actually drive more profits? It can. One study in Harvard Business Review looked at customer spending with brands over time. After allowing for other factors that drive repeat purchases, customers who had the best experiences with a brand spent 140% more compared to those who had the worst past experience. The better the experience, the higher the lifetime spend of any given customer. 

Compliance Training 
(Anti-Harassment, Safety, Diversity, etc.)  

Almost all medium-to-large companies have mandatory training to stay compliant. That training should be more than checking a box.  

For example, in 2019, the U.S. Equal Employment Opportunity Commission (EEOC) recorded 7,514 sexual harassment claims. The payouts U.S. companies made for the successful claims are estimated at $68.2 million. That money could have been better spent training employees to avoid the behavior which caused these claims.  

In a revealing June 2016 report, the EEOC Select Task Force on the Study of Harassment in the Workplace found up to 60% of workers have experienced race- or ethnicity-based harassment in the workplace. It takes only one employee to bring a case against an organization, which, according to the 2017 Hiscox Guide to Employee Lawsuits, will happen in more than 10% of all organizations. 

Fighting those cases can be costly. According to Workforce Magazine, employers can expect to lose between $75,000 and $125,000 defending a case through discovery and a ruling on a motion for summary judgment assuming the employer wins. Losing a case can surpass $150 million. 

What Does All This Mean? 

Today’s modern organizations face many challenges, and those in leadership have a full plate. 

The most important questions you should ask are how is your leadership is meeting those challenges, and are your employees equipped to meet those challenges? 

If your employees are not prepared, the costs can get out of control. On the other hand, employees who can meet these challenges will, over time, mitigate, or even reverse, these costs. That will happen only if you properly train them. 

Your organization doesn’t have to do it all at once. Begin with the challenges to which you are most susceptible. While safety training is key for all companies, it has an outsized impact for energy companies. Technical and compliance training must also be part of their overall strategy.  

Finally, a focus on fundamental customer service training can bring results throughout your workforce. These steps can save a modest-sized company nearly half a million dollars in costs from NOT training. The ROI is there; your company simply has to take the first step. 

 

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HSI is a leader in training and compliance solutions for the power industry and provides a range of technical training services for generation, transmission, and distribution. Our integrated services improve safety, compliance, and employee development.
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Julian Jackson's picture
Julian Jackson on Mar 17, 2022

I agree, good training is vital in the modern world.  That includes, to my mind, a continuous process of improvement, rather than just one induction/onboarding and then the employee is left to learn on the job. Where would you say the greatest priorities should be? Should companies have in-house training or outsource it to specialist providers? Given the issues of workforce/skills shortages, should companies look to recruit/retrain elder or career break people rather than youngsters?

Chad Johnson's picture
Chad Johnson on Apr 11, 2022

Great questions, Julian. I don't think we have to make an absolute choice between in-house or outsourced training when deciding our priorities. The most important choice to be made is to internally recognize the importance of training and make executive decisions to support the program, whatever it might look like. From there, decisions can be made on how best to provide training for individual circumstances. Sometimes, outsourcing makes the most sense and allows you to draw on the experience of others and avoid many of the developmental costs of starting a program from scratch in-house. There are instances when you should rely on in-house expertise, particularly when the training requires deep knowledge and understanding of your internal processes. Overall I recommend a blended approach, where you outsource where appropriate and keep your internal experts as close to the training program as possible. Regardless of the training solution chosen, it is imperative that you have internal buy-in and heavy involvement from within your organization. Outside training can provide many levels of technical expertise, but it can't change your corporate culture. If the training program is not supported at high levels of the organization your employees will get less from it, no matter the training source.

With the ongoing shortage of workers, I think it's important to make the best use of older, more experienced employees before they retire or while they still retain their deep institutional knowledge, but not as a replacement for younger workers. A sustainable workforce requires an influx of new talent, and the new hires will need to be trained. Experienced workers who are nearing retirement could be a valuable resource for training the new employees. Many are eager to help in this capacity, even after their formal retirement, but their work is not free. There are business decisions beyond my level of expertise that would be required to formalize a program around this, but I think it's worthy of further discussion.

Henry Craver's picture
Henry Craver on Mar 17, 2022

This interview with a Wharton researcher provides some useful insights into the value and challenges of diversity training. 

Chad Johnson's picture
Chad Johnson on Apr 11, 2022

This article offers some great observations that apply to many other types of training, like the difficulty in determining the optimal type and length of training, which varies based on subject matter, intended audience, and corporate culture. It also addresses how hard it is to measure learning outcomes. We can easily assess if knowledge/skill transfer has occurred, but it's much more challenging to measure how this translates to changing outcomes.

Thanks for sharing this!

Guillermo Sabatier's picture
Guillermo Sabatier on May 6, 2022

Great article and very timely given the looming challenges faced by the energy industry with losing 25% of the expert workforce in the next few years.  The old saying: "The boss has forgotten more than I will ever learn" becomes more relevant in light of this.  One area some organizations have begun to look into is an effective transition management plan matrixed with their initial training process.  

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